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GENERAL BUSINESS/ECONOMY NEWS (APRIL - JUNE 2014)

Boost for Automation, Modernisation Sector

Malaysian Industrial Development Finance Bhd (MIDF) has received an additional RM50 million funding from the International Trade and Industry Ministry to be chanelled to the automation and modernisation industry. The allocation will bring the total funding for the segment to RM720 million from RM670 million in 2007. It is the second biggest amount after that for small and medium enterprises (SMEs). “This (additional allocation) underlines the importance of this particular segment for Miti, as well as its contribution to the country’s gross domestic product,” MIDF head of development finance division Nik Izani Nik Muhammad said.

He was speaking in an interview on the sidelines of Deputy International Trade and Industry Minister Datuk Hamim Samuri’s visit to Azman Hamzah Plastik Sdn Bhd and Industrial Quality Management Sdn Bhd, here, on Monday. Nik Izani said the allocation will not only cover the expenditure to improve machineries and for expansion of vendors in the automation and modernisation industry, but also be used in hiring more local talent. “As we progress towards 2020, we need to be less reliant on foreign labour and go on more value-added activities, but first, these companies need to invest and we are here to help with that,” he said. He believed that MIDF is the ideal vehicle for Malaysian companies to obtain funding as inflation is expected to set in soon and the Overnight Policy Rate to rise. “That is why SMEs should use our facilities as we offer a fixed interest rate of four per cent for the entire tenure of the loan,” Nik Izani said.

Earlier at a press conference, MIDF group managing director Datuk Mohd Najib Abdullah announced that MIDF would be targeting RM600 million worth of funding this year for local firms and entrepreneurs, an increase of RM4 million from last year’s RM596 million. Out of the total, RM200 million will be allocated to Bumiputera companies, of which half will be used towards increasing their land holdings and strengthening their businesses. Last year’s RM596 million was allocated to 289 local companies, which brought up the total approved funding by MIDF to RM3 billion since it was mandated by the Government in 2001 to help overlook the financing of local companies.

MIDF has also allocated a RM100 million funding for SMEs that are having problems in managing the newly implemented Minimum Wages Order. The minimum wage ruling was implemented on January 1 last year for employers with more than five employees and July 1 for those with five or fewer employees. SMEs began paying their foreign employers minimum wages on January 1 this year. “Many SMEs have approached us to get extra funding to meet the minimum wage requirement. We have allocated RM100 million for this particular struggle,” said Najib. “The maximum amount that we will allocate is RM5 million per approved company, depending on its need and if it meets the criteria.” Going forward, electrical and electronics, semiconductor, automation and modernisation, and food and beverages segments are expected to continue being the biggest sectors in seeking funding from MIDF.

(Source: New Straits Times, 14 May 2014)

Govt to Launch Subsidy for GST Software Package, Says Ahmad

DThe Government will launch the subsidy for goods and services tax (GST) software package for small and medium enterprise (SME) in the near future, said Deputy Finance Minister Datuk Ahmad Maslan. He said out of the RM150 million allocated by the Government, a subsidy worth RM1,000 would be given to each SME to enable them to update their accounting system. "The Government will launch the subsidy possibly in June or July," he said to reporters after launching the national forum on GST titled "Preparing for Malaysia GST Implementation 2015" here today.

To disseminate information and exposure on the GST, the Government has set aside an allocation of RM250 million, out of which RM100 million is to provide training for SMEs while the remaining RM150 million has been allocated for the SMEs to update their accounting software. Ahmad said about half of the RM100 million allocation had been used, and he urged the other SMEs to come forward to utilise the balance of the grant totalling RM50 million to enable them to acquire a deep understanding on the tax system which would replace the sales and services tax.

He also said the Government is currently working to look for more vendors to supply the GST software compared with 55 to date. The software price was around RM1,200 each, he said. "The Government will also come out with a goods price list early next year. To date, the prices of some 689 goods have been fixed and there's about 255 more goods whose prices have not been adjusted," he said. Ahmad said some 10 per cent of the goods in the list would be see a price increase such as processed food, 48 per cent would see an unchange in price such as hotel services and fast food and 42 per cent would see a decrease in price (clothing and furniture).

(Source: The Sun, 16 May 2014)

Industrial Output Expands 4.2pc

Industrial output expanded 4.2 per cent compared to a year ago on the back of improving external demand for manufactured products. The Statistics Department said the rise was due to growth in all sub-indices — manufacturing (4.0 per cent), mining (4.7 per cent) and electricity (3.9 per cent). Improvements in the manufacturing sector were contributed by electrical and electronic products and wood products, furniture, paper products and printing.

Bank of America Merrill Lynch economist Dr Chua Hak Bin said manufacturing output expanded at a slower pace, although mining output reverted to expansion. “Exports are surging and industrial production remains relatively robust. Malaysia is one of the few Asian countries visibly benefiting from rising external demand with shipments to G3 economies improving. Surging exports and robust production provide room for Bank Negara Malaysia to hike the policy rate,” said Chua. The research house expects a 25-basis point hike at the July 10 meeting and another rate hike in the later part of the year.

AllianceDBS Research said the Industrial Production Index (IPI) could likely be sustained at decent growths, given that the data on global manufacturing activities and global Purchasing Managers’ Index (PMI) rebounded to 52.2 in May from 51.9 in April. “In this regard, we are confident that manufacturing activities will remain strong and export demand from the advanced economies will continue to support trade activities. Malaysia’s growth will still be moderating slightly from 6.2 per cent in the first quarter, in view of rising cost of living that may likely drag down future domestic demand,” it said.

Meanwhile, the manufacturing sector recorded a 7.7 per cent growth in sales to RM53.2 billion in April. Growth was led by the manufacture of electrical capacitors and resistors, diodes, transistors and similar semiconductor devices as well as plastics in the primary forms. BIMB Securities said the stronger growth in industrial activities in the first four months pointed to an improvement in economic activities.

This is on account of a sustained increase in domestic demand, while external demand for the country’s exports had also improved. “Although manufacturing output eased slightly in April, E&E products (14.2 per cent) continue to contribute significantly to the output and this was reflected in exports numbers where shipments of E&E expanded 22 per cent,” said economist Imran Nurginias Ibrahim. Imran said the global economy will likely maintain steady recovery trajectory and a pick-up in global demand will likely lift the country’s exports and, hence, its industrial output and manufacturing sales.

(Source: New Straits Times, 12 June 2014)

Malaysia’s Exports Contribution Returning

Wednesday’s release of the industrial production index (IPI) data for April and the monthly manufacturing sector statistics increasingly shows that exports will be contributing more to the economy’s growth than previously. While domestic demand in the form of private consumption has been resilient, cost-push inflation and measures to cool the property market could still put a dampener to this growth leg, thereby making the growth momentum in the developed economies and external demand all the more crucial. The IPI is a leading indicator tracking factory output, and that is painting a brighter outlook for economic growth despite the deceleration on a year-on-year basis. This is because with the latest data, and backed by the stronger than expected gross domestic product (GDP) growth in the first quarter, economists are now estimating that growth will be healthy for the remainder of the year.

Citigroup Inc economist Kit Wei Zheng says the accelerating growth momentum “points to a strong start to second-quarter gross domestic product (GDP)”. He adds that IPI growth has been gathering steam led by a surge in mining and manufacturing, with April factory output now 2.8% above the first-quarter average. Furthermore, factory output from the exports-related electrical and electronics segments have seen a 2.2% rise above first-quarter levels. Kit says although base effects may imply slower year-on-year GDP growth rates going forward, sequential growth will likely accelerate from the first quarter’s 3.3% quarter-on-quarter, after adjusting for seasonal variations. A sign that exports will continue to support economic growth came in April when there was an 18.9% jump year-on-year in exports, more than double the growth in March.

Alliance Research chief economist Manokaran Mottain has raised this year’s GDP forecast to 5.3% from 5% earlier based on the strong GDP growth seen in the first quarter and strong recovery in external demand from the advanced economies. Describing the recovery in external demand from major trading partners such as China, the United States, Japan and Asean as “a pleasant surprise”, he says looking ahead, factory output growth could be sustained at a decent pace.

This will be supported by the recovery in global manufacturing activities given that the global purchasing managers index (PMI, a leading indicator of the manufacturing sector) has been in expansion mode while the Tempe, Arizona-based Institute for Supply Management’s manufacturing index is showing that US growth momentum has accelerated. There are also signs that China’s slowdown may be stabilising with the official manufacturing PMI rising to a five-month high in May but this was tempered by the continuing contraction in the HSBC manufacturing PMI, albeit higher than in April.

Manokaran is confident that manufacturing activities will remain strong due to demand from the advanced economies. This will be supported by trade activities but economic growth will moderate from the 6.2% year-on-year growth of the first quarter as inflation may be a drag on domestic demand. He expects GDP growth to remain healthy, moderating to between 5% and 5.5% in the second quarter and in the second-half of the year.

CIMB Investment Bank Bhd economist Julia Goh sees Malaysia as a key beneficiary of the global uptick with the IPI to run a stable course over the coming months. “We also foresee higher mining output, with the new oil and gas fields and power plants starting operations,” she says. Goh says there is potential upside to the house’s current IPI growth target of 3% to 3.5% this year due to the strong upturn in exports and resilient domestic demand.

However, exports to the developed economies will be crucial. AmResearch economist Patricia Oh says this is because exports to China could taper in May. “The acceleration in high-income economies is an impetus for growth in developing countries. As such, the improvement in economic activities in the United States and European Union will spur Malaysia’s exports growth,” she points out. Oh adds that the softer year-on-year IPI expansion for April compared to March was largely attributed to the slowdown in domestic demand while exports had advanced on the back of a pick-up in global demand in recent months.

This can be seen from the production for export-oriented industries, which improved 6.9% year-on-year in March after growing 6.6% in February whereas production for domestic-oriented industries shrank to 5% in March from 20.1% in February. “Going forward, the boost in net trades will likely compensate for the softer domestic growth. In nominal terms, we envisage a healthy trade surplus of RM104.2bil in 2014,” Oh says.